The 2023 Medicare Physician Fee Schedule Proposed Rule was released on July 7, 2022. The proposed rule includes CPT code changes recommended by the American Medical Association (AMA). The changes are numerous and vary in type, but the result is an overall increase in work Relative Value Units (RVUs) for nearly all physicians who provide evaluation and management (E&M) services in hospitals and nursing facilities.

Background: 2021 Outpatient E&M Code Changes

In 2021, Medicare implemented recommendations from the AMA to increase the work RVUs for seven common procedure codes for outpatient E&M office visits. The 2021 changes were meaningful for employers that calculated physician compensation on work RVU productivity systems. Many office-based physicians practicing in family medicine, internal medicine, pediatrics, rheumatology, and hematology/oncology experienced over 20% increases in work RVUs effective January 1, 2021. The 2021 changes had serious financial implications for many large physician employers for whom reimbursement did not increase commensurately with the increase in work RVUs.

The COVID-19 pandemic delayed the AMA’s agendas for the CPT Editorial Panel and RVS Update Committee during 2020, but the AMA finally followed up with its updates to the inpatient evaluation and management CPT codes and RVU values for the 2023 calendar year.

2023 Inpatient E&M Code Changes

The 2023 Medicare Physician Fee Schedule Proposed Rule (2023 Proposed Rule) includes both increases and decreases in work RVU values for E&M services provided in hospital and nursing facility settings. Generally, the most used billing codes (99232, 99233, 99308, and 99309) within this subset are all proposed to realize double digit increase in work RVUs.

Table 1: Proposed 2023 E&M Code Updates

CPT/HCPCS DESCRIPTION 2022 Work RVUs 2023p Work RVUs Work RVU % Change
99221 Initial hospital care 1.92 1.63 -15%
99222 Initial hospital care 2.61 2.60 0%
99223 Initial hospital care 3.86 3.50 -9%
99231 Subsequent hospital care 0.76 1.00 32%
99232 Subsequent hospital care 1.39 1.59 14%
99233 Subsequent hospital care 2 2.40 20%
99234 Observ/hosp same date 2.56 2.00 -22%
99235 Observ/hosp same date 3.24 3.24 0%
99236 Observ/hosp same date 4.2 4.30 2%
99238 Hospital discharge day 1.28 1.50 17%
99239 Hospital discharge day 1.9 2.15 13%
99304 Nursing facility care init 1.64 1.50 -9%
99305 Nursing facility care init 2.35 2.50 6%
99306 Nursing facility care init 3.06 3.50 14%
99307 Nursing fac care subseq 0.76 0.70 -8%
99308 Nursing fac care subseq 1.16 1.30 12%
99309 Nursing fac care subseq 1.55 1.92 24%
99310 Nursing fac care subseq 2.35 2.80 19%
99315 Nursing fac discharge day 1.28 1.50 17%
99316 Nursing fac discharge day 1.9 2.50 32%

Source: Comparison of 2023 Proposed Rule to RVU22C

The work RVUs changes in the 2023 Proposed Rule are more complex than those in the 2021 Final Rule. The 2021 Final Rule only increased work RVUs for seven outpatient services codes. Forecasting the 2023 Proposed Rule accurately requires crosswalking many deleted codes with substitute codes. The AMA and Medicare have proposed to delete hospital observation E&M procedure codes and merge those services into the codes for hospital inpatient E&M services. Visit codes for E&M services in assisted living and custodial care facilities are also being consolidated into the general home visit service codes.

Table 2: 2023 Deleted Codes & Substitutes

Deleted Codes Substitute Codes Deleted Description Substitute Descriptions
99217 99238 Observation care discharge Hospital discharge day (<=30 min)
99218 99221 Initial observation care Initial hospital care (>= 40 min)
99219 99222 Initial observation care Initial hospital care (>=55 min)
99220 99223 Initial observation care Initial hospital care (>=75 min)
99224 99231 Subsequent observation care Subsequent hospital care (>=25 min)
99225 99232 Subsequent observation care Subsequent hospital care (>=35 min)
99226 99233 Subsequent observation care Subsequent hospital care (>=50 min)
99241 99242 Office consultation Office consultation (>=20 min)
99251 99252 Inpatient consultation Inpatient consultation (>=35 min)
99324 99341 Domicil/r-home visit new pat Home visit new patient (>=15 min)
99325 99342 Domicil/r-home visit new pat Home visit new patient (>=30 min)
99326 99342 Domicil/r-home visit new pat Home visit new patient (>=30 min)
99327 99344 Domicil/r-home visit new pat Home visit new patient (>=60 min)
99328 99345 Domicil/r-home visit new pat Home visit new patient (>=75 min)
99334 99347 Domicil/r-home visit est pat Home visit est patient (>=20 min)
99335 99348 Domicil/r-home visit est pat Home visit est patient (>=30 min)
99336 99349 Domicil/r-home visit est pat Home visit est patient (>=40 min)
99337 99350 Domicil/r-home visit est pat Home visit est patient (>=60 min)
99343 99342 Home visit new patient Home visit new patient (>=30 min)
99354 99417 Prolng svc o/p 1st hour Prolong office/outpatient e/m each 15 min
99355 99417 Prolng svc o/p ea addl 30 Prolong office/outpatient e/m each 15 min
99356 993X0 Prolng svc i/p/obs 1st hour Prolong inpatient/observation e/m each 15 min
99357 993X0 Prolng svc i/p/obs ea addl 30 min Prolong inpatient/observation e/m each 15 min

Source: AMA CPT Evaluation and Management Code and Guideline Changes

2023 Overall Medicare Work RVU Impact by Specialty

LBMC calculated the overall work RVU impact of the 2023 Proposed Rule changes by specialty by applying the new work RVU values to the billing data contained in the public 2019 Medicare Provider Utilization and Payment data set.

This analysis indicates that hospitalists, infectious disease physicians, geriatricians, PM&R, hematologists, psychiatrists, internists, palliative care, and other specialists who practice in hospital and nursing facilities will realize the most increases in work RVUs from the 2023 Proposed Rule changes. Advanced Practice Providers (APPs) specializing in geriatrics, acute medicine, mental health, and other facility-based specialties are similarly affected.

When combined with the 2021 outpatient E&M changes, dozens of specialties will realize double-digit increases in work RVUs.

Table 3: Estimated Overall Changes in Work RVUs by Specialty

Self Identified Primary Specialty 2020-2021 Overall wRVU % Change 2022-2023 Overall wRVU % Change 2020-2023 Overall wRVU % Change
Hospitalist 0.4% 9.2% 9.7%
Internal Medicine – Infectious Disease 3.1% 7.7% 11.0%
Physical Medicine & Rehabilitation 5.3% 6.8% 12.3%
Internal Medicine – Hospice and Palliative Medicine 3.4% 6.6% 10.3%
Psychiatry & Neurology – Geriatric Psychiatry 8.9% 6.1% 15.5%
Family Medicine – Geriatric Medicine 8.9% 6.1% 16.1%
Internal Medicine – Geriatric Medicine 9.9% 6.0% 17.3%
Family Medicine – Hospice and Palliative Medicine 3.8% 5.4% 9.6%
Internal Medicine – Hematology 15.1% 4.8% 20.5%
Psychiatry & Neurology – Psychiatry 12.1% 4.6% 17.3%
Internal Medicine 12.6% 4.4% 18.3%
Surgery – Trauma Surgery 0.9% 4.3% 5.2%
Surgery – Surgical Critical Care 0.7% 4.2% 5.0%
Internal Medicine – Advanced Heart Failure and Transplant Cardiology 6.9% 4.1% 11.5%
Internal Medicine – Pulmonary Disease 7.0% 4.1% 11.5%
Psychiatry & Neurology – Psychosomatic Medicine 11.1% 3.9% 15.5%
Internal Medicine – Critical Care Medicine 2.6% 3.9% 6.6%

Note: Overall wRVU % change by specialty does not reflect the skewed impact within specialties. Disclaimer: No estimate is made for changes in existing coding patterns other than substitutes.

Highly Variable Work RVU Impacts within Specialties

The overall work RVU increases projected in the previous section does not reflect the expected variation in work RVU changes among physicians within each specialty. The 2023 Proposed Rule includes both increases and decreases in work RVUs among the CPT codes affected. The severity and complexity of patient illnesses varies from physician-to-physician within each specialty. The proportion of E&M services provided in hospitals, offices, and nursing facilities can also vary substantially within specialties like internal medicine, psychiatry, and geriatrics.

For example, the table below summarizes the separate and combined changes for the 2021 Final Rule and 2023 Proposed Rule. The percentage changes from 2020 to 2021 in the left-most column illustrate the distribution of work RVU increases exclusively for outpatient E&M services. The percentage changes from 2022 to 2023 in the center column illustrate the distribution of work RVU increases exclusively for inpatient E&M services. The percentage changes in the right-most column illustrate the combined effects of both the 2021 and 2023 rules. This analysis for 68,153 self-identified internal medicine physicians indicates that at least half of internists provide no inpatient E&M services, but nearly all internists are affected by the combined changes from both rules.

Table 4: Estimated Work RVU Change Variability within Internal Medicine (n=68,153)

  2020-2021 wRVU % Change 2022-2023 wRVU % Change 2020-2023 wRVU % Change
10th 0.0% 0.0% 7.5%
25th 0.0% 0.0% 12.3%
50th 20.2% 0.0% 22.9%
75th 27.8% 8.4% 28.0%
90th 29.7% 12.8% 29.9%

Disclaimer: No estimate is made for changes in existing coding patterns other than substitutes

By comparison, the sample of 17,712 psychiatrists in the table below appears to include sub-groups with office-based and facility-based practices, as well as many individuals who practice in both settings. This is evidenced by modest shifts in work RVUs at the median between the left-most and right-most columns, while the upper half of the distribution remains mostly unchanged.

Table 5: Estimated Work RVU Change Variability within Psychiatry (n=17,712)

  2020-2021 wRVU % Change 2022-2023 wRVU % Change 2020-2023 wRVU % Change
10th 0.0% 0.0% 10.1%
25th 3.8% 0.0% 13.7%
50th 14.6% 0.0% 20.1%
75th 28.0% 8.4% 28.2%
90th 31.9% 14.6% 32.1%

Disclaimer: No estimate is made for changes in existing coding patterns other than substitutes

Predictably, the sample of 13,529 hospitalists analyzed in the following table were not impacted by the 2021 outpatient E&M work RVU changes at all. The variation of inpatient E&M service severity and coding among these hospitalists yields a wide range of estimated effects from 2% decreases in work RVUs at the 10th percentile to 15% increases in work RVUs at the 90th percentile.

Table 6: Estimated Work RVU Change Variability within Hospital Medicine (n=13,529)

2020-2021 wRVU % Change 2022-2023 wRVU % Change 2020-2023 wRVU % Change
10th 0.0% -2.4% -2.2%
25th 0.0% 7.1% 7.8%
50th 0.0% 10.4% 10.8%
75th 0.0% 12.9% 13.2%
90th 0.0% 14.9% 15.4%

Disclaimer: No estimate is made for changes in existing coding patterns other than substitutes

Reimbursement Effects

The 2023 Proposed Rule includes two adjustments to Medicare’s physician payment conversion factor. A 3.0% rate decrease is applied for the expiration of the Protecting Medicare and American Farmers from Sequester Cuts Act on December 31, 2022. An additional 1.55% rate decrease is also applied as a budget neutrality reduction to offset the increases in projected RVUs.

Table 7: 2023 Proposed Rule Payment Conversion Factor Decrease

CY 2022 Conversion Factor $34.6062
Conversion Factor without CY 2022 Protecting Medicare and American Farmers from Sequester Cuts Act $33.5983
Statutory Update Factor 0.00 percent (1.0000)
CY 2023 RVU Budget Neutrality Adjustment -1.55 percent (0.9845)
CY 2023 Conversion Factor $33.0775

Source: 2023 Medicare Physician Fee Schedule Proposed Rule Text: TABLE 136: Calculation of the CY 2023 PFS Conversion Factor

The purpose of the proposed conversion factor adjustments is to neutralize payment increases that the work RVU increases would otherwise have created. The consequence of Medicare’s budget neutrality adjustment is that work RVUs will increase at a disproportionately higher rate than reimbursement for specialists who provide E&M services in hospital and nursing facility settings. Even if Congress implements a 3.0% to 3.5% payment fix again for the 2023 period, employers using work RVU production systems for hospital-based physician compensation will still feel the financial pressure of rising compensation costs without commensurate reimbursement increases.

Adapting to Changes in Work RVU Production, Compensation & Reimbursement

On a combined basis, the 2023 Proposed Rule and the 2021 Final Rule materially change the Resource-Based Relative Value System on which physician reimbursement, productivity, and compensation is built. Commercial insurance carriers will not emulate Medicare’s changes in their own reimbursement systems overnight. Accordingly, an added level of thoughtfulness is required when using industry compensation and production surveys to set physician compensation. Employers of specialists that were unaffected by the 2021 Final Rule may find that they are materially affected by the 2023 Proposed Rule.

The path forward begins with identifying the financial impact of the 2021 and 2023 work RVU changes on production, compensation, and reimbursement for your healthcare professionals. Once the financial impact is known, the various options of partially or fully adopting the new production system changes can be assessed within your budgetary resources and restrictions.

LBMC Advisory Services has a team of experts exclusively dedicated to physician compensation analysis, planning, strategy and valuation. Contact LBMC today for assistance with productivity and compensation forecasts, scenario analyses, compensation planning, and questions regarding the impact of the 2023 Proposed Rule on Fair Market Value compensation analysis.

LBMC’s Nick Newsad recently discussed how the 2023 Medicare Physician Fee Schedule Proposed Rule will affect physician productivity measurement, compensation, and reimbursement during a webinar on August 4, 2022. Watch the webinar On-Demand: https://www.lbmc.com/blog/webinar-new-physician-work-rvu-increases/